Financing extended to a person, company, or other entity, using existing assets as collateral in order to acquire new assets. Bridge financing is usually short-term.
Bridge financing is a method of financing, used to
maintain liquidity while waiting
for an anticipated and reasonably expected inflow of cash. Bridge
financing is commonly used when the cash flow from a sale of an asset is
expected after the cash outlay for the purchase of an asset.
Bridge financing may also be provided by banks underwriting an
offering of bonds. If the
banks are unsuccessful in selling a company's bonds to qualified institutional
buyers, they are typically required to buy the bonds from the issuing company
themselves, on terms much less favorable than if they had been successful in
finding institutional buyers and acting as pure intermediaries.
There are two types of bridging finance. Closed
bridging and Open Bridging.
Closed bridging finance is where you have a date
for the exit of the bridging finance and are sure that the bridging finance can
be repaid on that date. This is less risky for the lender and thus the interest
rate charged are lower.
Open bridging is higher risk for the lender. This
is where the borrower does not have an exact date for the bridging finance exit
and may be looking for a buyer of the property or land.